Exaggerating the downturn

How bad is the current recession? Unpleasant but not as bad as many commentators are claiming according to a leading free market economist.

Allan H Meltzer, a professor at Carnegie Mellon University in Pittsburgh, argues in the Wall Street Journal that the American downturn is comparable to other post-War recessions in terms of decline in output and duration. It is not, he says, comparable to the Great Depression of the 1930s:

“A more accurate comparison is to the 1973-75 recession. Today’s recession is as deep and most likely won’t be much longer than the one we experienced some three decades ago. By pointing this out, I do not intend to minimize the damage that the economic crisis has had on individuals and businesses. But as policy makers make decisions in order to alleviate the recession, they are not helped when economists overstate its severity.”

But if the recession is not so bad it begs the question of why so many experts and commentators are talking it up. Meltzer argues it is a reflection of their Keynesian biases. For them it provides a way of justifying the extensive state intervention measures they favour.